In a surprising twist of market dynamics, Microsoft has overtaken Apple to become the world’s most valuable company. This shift comes as a result of concerns over smartphone demand, affecting Apple’s shares and boosting Microsoft’s position in the market.

Microsoft’s stock market value closed higher than Apple’s in a recent trading session, marking the first time since 2021 that the tech giant has surpassed the iPhone maker.

Apple experienced a marginal 0.2 percent increase in its stock on Friday, while Microsoft saw a 1 percent rise. This propelled Microsoft’s market capitalization to a record-high of $2.887 trillion, according to LSEG data, surpassing Apple’s market capitalization of $2.875 trillion.

The concern over smartphone demand has been a significant factor in Apple’s recent stock performance, with shares declining by 3 percent in 2024 after a robust 48 percent rally in the previous year.

In contrast, Microsoft has seen a 3 percent increase in its stock value year to date, following a remarkable 57 percent surge in 2023. Microsoft’s momentum is partly attributed to its leadership in generative artificial intelligence, driven by its investment in OpenAI, the creator of ChatGPT.

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Microsoft’s incorporation of OpenAI’s technology into its suite of productivity software has played a pivotal role in revitalizing its cloud-computing business. This has not only contributed to Microsoft’s current lead but has also positioned it to challenge Google’s dominance in web search.

Apple, on the other hand, is grappling with subdued demand, particularly for its flagship product, the iPhone. Factors such as tepid demand in China, intensified competition from resurgent Huawei, and the slow recovery of the Chinese economy from the COVID-19 pandemic have all impacted Apple’s market share.

Microsoft’s surge to the top spot in terms of market valuation is not unprecedented; it has briefly claimed this position a few times since 2018. The last instance was in 2021 when concerns about supply chain shortages related to the COVID-19 pandemic affected Apple’s stock price.

Both Microsoft and Apple are currently trading at relatively high price-to-earnings (PE) ratios compared to their historical averages. Apple’s forward PE is at 28, well above its 10-year average of 19. Microsoft, with a forward PE of 32, is trading above its 10-year average of 24, according to LSEG data.

Looking ahead, Apple’s sales of the Vision Pro mixed-reality headset, scheduled to start on February 2 in the United States, are anticipated to be a significant product launch. However, analysts project that these sales may have a relatively modest impact on Apple’s earnings per share in 2024.

As Apple and Microsoft navigate the complexities of the tech market, their contrasting fortunes shed light on the evolving landscape of consumer preferences and global economic factors that shape the industry’s dynamics.

Apple is set to report its results on February 1, while Microsoft’s report is expected in the coming weeks, with analysts predicting a 16 percent increase in revenue to $61.1 billion.


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